W.T.O. Rules Against U.S. on Steel Tariff

By ELIZABETH BECKER

Published: March 27, 2003

WASHINGTON, March 26 — The World Trade Organization ruled today that the steel tariffs imposed by President Bush last year were illegal.

The administration said it would appeal the decision.

While the trade decision was called interim, with the final report expected next month, it is rare for an interim decision to be reversed. If the United States loses next month, European and other nations could impose trade sanctions of comparable value against the United States.

Last spring, Mr. Bush imposed tariffs of nearly 30 percent on most types of steel imported from Europe, Asia and South America, the biggest government action to protect an industry in several decades. While it was praised by the steel industry and trade unionists, the move was criticized by free trade advocates and companies that use steel in manufacturing.

The case against the tariffs was brought by the European Union, which accused the United States of illegally protecting the steel industry. Pascal Lamy, the European Union's trade commissioner, called the tariffs "unjustified, highly protectionist U.S. measures."

"I am in no doubt that the U.S. will lose this case, as it has lost all six previous safeguard cases," Mr. Lamy said when the initial case was brought against the United States.

But there was no celebratory statement or any comment from the Europeans today. All spokesmen said they would not discuss an interim decision, but foreign officials also said Europe wanted to avoid creating a further division with the United States in a time of war.

Today's ruling, which was not a surprise, was the second major loss for the United States at the W.T.O. in the last year. The trade panel awarded Europe the right to impose $4 billion worth of trade sanctions against the United States for giving tax breaks to American exporters through foreign sales corporations.

When administration officials imposed the steel tariffs they said they were legal under provisions in the world trading rules allowing a response to a surge of steel imports.

The tariffs were meant to help the American steel industry find its footing in the global market. American trade officials said today that the strategy worked.

"The domestic steel industry has undergone an unprecedented level of consolidation and restructuring over the last year that have made it more competitive," said one American trade official, who insisted on not being identified.

Democratic lawmakers criticized the trade decision, citing a United States International Trade Commission study done before the tariffs were imposed that showed imports were seriously injuring important parts of the American steel industry. They said the W.T.O. had exceeded its authority.

"I support the goal of an international trading system," said Senator Max Baucus, Democrat of Montana. "But we have a growing problem with dispute settlement decisions that are inventing obligations and requirements to which the United States and other countries never agreed. Ultimately, these types of decisions will only undermine confidence in the W.T.O."

Some Democrats said the administration was partly to blame for failing to adopt an aggressive strategy to end a series of rulings against the United States.

Representative Sander M. Levin, Democrat of Michigan and ranking minority member of the House Ways and Means trade subcommittee, accused the administration of overseeing the loss of 13 of 15 cases brought against the United States since 2001.

"This decision furthers a trend that jeopardizes the credibility of the W.T.O. dispute-settlement system and must serve as a wake-up call for the administration," Mr. Levin said.

In Congressional hearings today, steel officials and union representatives praised the tariffs. Leo W. Gerard, international president of the United Steelworkers of America, told lawmakers that they should not forget the history that led to the president's decision to impose the steel tariffs. For several years, he said, the domestic steel industry was "under attack from foreign producers, aided and abetted by foreign governments through subsidies and other market manipulations."

"The consequences of this assault have been disastrous for our steelworkers and for the American steel industry," Mr. Gerard said.

The result, he said, was that 37 companies were forced into bankruptcy, 54,000 steel workers lost their jobs, and pension plans and health care programs were being scaled back for retirees, widows and other dependents.

But some manufacturers have complained that the tariffs have led to higher prices for steel and hurt their companies.

Wes Smith, the president of the E&E Manufacturing Company, with 250 employees in Plymouth, Mich., testified that the tariffs and rising cost of steel amounted to a new tax for him.

"We are willing to meet the challenge of competing with the Asians," Mr. Smith said. "However, we cannot do that with our hands tied behind our backs by having our government tax our largest input by 30 percent."

ASHINGTON, March 26 — The World Trade Organization ruled today that the steel tariffs imposed by President Bush last year were illegal.